The Outlaw Chronicles

Issue #2 · April 2026 · 8 min read

Mission Brief

Two founders raised the same week, at the same valuation cap. Both used SAFEs. Both thought they understood what they were signing. By the time their Series A closed, one of them owned $10 million more of the company than the other. The only thing that was different: a single word neither of them had noticed.

The Odyssey

The most expensive word in startup finance

Let me tell you about the most expensive word in startup finance.

It's not "liquidation." It's not "ratchet." It's not even "dilution," though that one costs people plenty.

The word is "pre."

Departure

Andy raised her seed round in the autumn of 2021. She is from Andromeda, which you should know upfront because it explains a lot about how she approaches documentation. Six hundred thousand dollars from four angels, all on SAFEs. She negotiated a $5M valuation cap, which felt right. Her lawyers drafted the documents. She signed four SAFEs over three months, told her co-founder they were properly funded, and got back to building.

Across the galaxy, the same week, Alfi raised the same amount. Alfi is from Alpha Centauri, which also explains a lot. Four angels. SAFEs. $5M cap. Identical on the surface.

The difference: Andy's SAFEs used a template from 2016. Alfi's used Y Combinator's 2018 update.

One template has the word "pre-money" in the cap definition. The other has "post-money."

Neither founder noticed. Their lawyers used the templates they had on file. Nobody flagged the distinction, because most lawyers who do not spend their days in venture finance do not think about this until it matters. And by the time it matters, the documents are already signed.

Layover

Both founders built. Both attracted attention. Both got term sheets from the same Series A lead: $12M pre-money valuation, $3M investment, standard terms.

Both celebrated. Both got on calls with their lawyers to walk through the conversion.

Arrival

Andy's four pre-money SAFEs converted first.

Here is how pre-money conversion works. Each SAFE's ownership percentage is calculated against the total shares outstanding at the time it converts. But those shares keep changing as each SAFE converts. The first one converts, increasing the share count. The second converts into a share count that has already been inflated by the first. They stack on each other. The interaction compounds.

On top of that, the Series A term sheet required an option pool expansion before the round closed. Standard practice. What that means in the pre-money world is that the pool comes out of the founders' shares before the SAFE conversion price is calculated. So the SAFEs get more shares than originally anticipated. The founders quietly absorb the cost.

When the model finished running, Andy owned 31% of her company.

Alfi's post-money SAFEs worked differently. Post-money SAFEs lock in the ownership percentage at the moment of signing, not at conversion. His four investors collectively owned exactly 12% of the company, as agreed when the ink dried. No stacking. No interaction effects. The option pool expansion happened after conversion, not before. The maths was the maths he had seen on the day he signed.

Alfi owned 41% post-Series A.

Same round size. Same cap. A $10M difference in what their equity was worth.

Why the stacking problem is so hard to see

Think of it this way. Imagine you agree to give someone a percentage of the water in your glass. Then you agree to give a second person a percentage of the water in your glass. But the deal with the second person was written without counting how much the first person was going to take. Then you add a third and fourth on the same terms. Each new deal is based on a glass that keeps getting emptier than the person calculating their share expected it to be. By the time they all collect, the glass is a lot emptier than any of them modelled.

That is pre-money SAFE stacking. Each SAFE's conversion price is calculated based on the shares outstanding, but the shares outstanding keep changing as the earlier SAFEs convert. The order of conversion matters. None of this shows up until the Series A lawyers run the model.

Andy's lawyer said: "This is what the conversion model shows." Andy said: "But I agreed to a $5M cap." He said: "You did. The cap is correct. The issue is how four pre-money SAFEs interact at conversion."

There was a silence. Then she asked: "What would it have looked like with post-money SAFEs?" He said: "About ten points higher. Maybe twelve."

She had never heard the words "pre-money SAFE" used as a technical distinction in her life.

Why post-money SAFEs did not exist until 2018

The original SAFE was designed by Y Combinator in 2013 for a simpler world. Founders raised one round from one investor at a time. The stacking problem was theoretical. Nobody thought much about it.

By 2018, seed rounds looked different. Multiple angels. Rolling closes. Five SAFEs in a round was normal, not unusual. YC went back and redesigned the instrument. The post-money SAFE fixes the stacking problem by locking in the ownership percentage at signing. The investor knows exactly what they will own. The founder knows exactly what they are giving away.

The old template did not disappear, though. It is still in law firm libraries everywhere. If their template is from 2016, you get a pre-money SAFE. If it is from 2018 or later, you get post-money. The question was never asked. The distinction was never explained. And in the time between signing and conversion, nobody thinks about it.

Until the model runs.

How to see it before it happens

I was on a call with a founder about six weeks before her Series A term sheet arrived. She had three pre-money SAFEs outstanding. I asked her to model the stacking effect. She had never modelled it. We spent 45 minutes on that call going through the conversion sequence. When she saw the result, she was quiet for a long time. Then she said: "I wish someone had shown me this when I was signing."

Open your signed SAFEs. Search for the words "pre-money" or "post-money" near the definition of the valuation cap. If you cannot find either, send it to a startup lawyer for a five-minute check.

If you have multiple pre-money SAFEs, model the stacking effect. The interaction is not linear. Two pre-money SAFEs at the same cap will produce a different result than one SAFE at twice the amount. The order of conversion matters.

If you have not issued your SAFEs yet, use the YC post-money template. It is free. It is the industry standard. Your investors will not object, and your conversion maths will be exactly what you expect it to be.

I built a free SAFE stacking model you can use right now. It's pre-filled with Andy and Alfi's numbers, so you can see the mechanics in action. Then clear the yellow cells and plug in your own SAFEs.

⚡ Download the SAFE Stacking Model

Ground Control

SAFE Reality Check: 5 Questions

Grab the free model and work through these:

⚡

Do your SAFEs say "pre-money" or "post-money" near the cap definition? If you do not know, this is the first thing to find out. Pull out the document and search those exact words. If you cannot find either, send it to a startup lawyer today.

⚡

What does your cap table look like when all SAFEs convert at your expected Series A valuation? Not your optimistic valuation. Your realistic one. If you have pre-money SAFEs, model the stacking sequence, not just the total.

⚡

How many SAFEs do you have outstanding? If the answer is more than two and they are pre-money, the interaction effects become meaningful. Model what happens when they convert in different orders.

⚡

Does your lawyer use the current YC SAFE template? Ask directly. If not, ask why not. There may be a good reason specific to your situation. There may not. Either way, you should know.

⚡

What is the option pool expansion your Series A term sheet will likely require, and who bears it? In the pre-money world, that expansion comes from the founders before conversion. Model your fully diluted ownership including the pool expansion. That number will be lower than you expect.

3 Signals

Things worth reading this week

⚡

Y Combinator SAFE documents — YC publishes the post-money SAFE for free, along with a two-page summary of what changed from the 2013 version and why. If you have signed SAFEs and have not read that summary, it takes five minutes and will be the most useful five minutes you spend this week.

⚡

NVCA Model Legal Documents — The National Venture Capital Association's model term sheets are as close to a US market standard as anything gets. Useful when your Series A lead tells you their terms are "standard" and you want to know what that actually means.

⚡

Carta's equity learning resources — Carta walks through pre-money vs post-money conversion mechanics with worked examples. If the maths above felt abstract, this makes it concrete. Worth reading before your next SAFE conversation.

Open Channel

When you signed your SAFEs, did anyone actually explain pre vs post-money?

Click the one that's you.

Nobody explained it

Found out at Series A

Someone explained it properly

Haven't checked yet

⚡ Tell me what to write about next

Every click opens an email. Add your story or just send it blank. I read every one.

Writing this from Amsterdam, where the canals are beautiful and the weather is doing its best impression of spring. It is not fooling anyone. Next Monday we are talking about shareholders agreements. Specifically, the three clauses that sound administrative until the day your co-founder wants out and those three clauses are the only thing standing between you and an €80,000 legal bill.

Have a great day ahead,

Pepe Carrillo

Founder, Mexzungu Group · Venture Architect

mexzungu.com · pepecarrillo.co · LinkedIn

Mexzungu Group · Outlaw Studio · Barcelona

The Outlaw Chronicles is for educational purposes only. It does not constitute legal, financial, or professional advice. For structuring decisions, engage qualified professionals in your jurisdiction.

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